“How To Do A Background Check On Potential Tenants?” written by Mike Marko
When you begin renting units in you property management business the most important goal is to find the best or most qualified tenants.
Finding good tenants and tenants that pay their rent on time allows you to focus on other business. The key to reducing “problems” with any of your tenants is to do thorough background checks.
When looking to find the most qualified tenants you will first need to set up some criteria. These criteria will help guide you through the tenant background searches. Running a background check on your possible tenants is one of the most important tasks you need to complete prior to renting to a new tenant. Knowing a potential tenant’s background will give you an idea of what kind of person that tenant is. It is best for you to avoid bad tenants who may not pay rents and could leave your properties damaged and be needing repairs after their stay at your property.
In this article, I will share enough information on how to do a background check quickly and easily on potential tenants.
Steps On How To Do A Background Check
Conducting a background check on possible tenants could be a lot of work. But, this is a vital process that you need to make sure that you will do correctly. Developing a system to sort through and review your tenant applications is a key part of being a good property manager. Also finding the right tenants to rent your properties to, will contribute to the success of your rental business. So let’s go over the steps on how to do a background check on your potential tenants.
Gather Information About A Potential Tenant
1. Tell your potential tenants to completely fill up a rental application form.
Every property manager needs a good and authorized rental application for possible tenants to fill out. If you don’t have time to personally put together a rental application form, you could check out the Internet to get a sample rental application form. You could also go to a legal website that sells rental application forms. However, if you do choose this route you might want to review the application so you meet local and state requirements for privacy and regulations.
Another way of obtaining a good rental application is to ask for a sample rental application form from your local real estate association. The rental application form includes all the necessary details you need in running a background check on your potential tenants. The form could help you decide if the person could be a good tenant.
The rental application should ask all the following details:
- The applicant’s full name, social security number, date of birth, contact information, and driver’s license number and state of issue (also, make sure to secure a copy of license)
- Current and past addresses, dates of residence, contact information of current and former landlords
- Present income, dates of current and previous employment, the names and contact information of present and former employers
- Banking and credit references for a credit check
- The contact information of three personal references.
2. Ask your potential tenants to sign a credit report authorization form.
According to Section 604 of the Fair Credit Reporting Act (FCRA), property managers should ask permission first before conducting a credit check on their potential tenants. You must ask for a receive a signed credit report authorization form before you can get a tenant’s credit report.
You should reject the application if an applying tenant wouldn’t agree to sign a credit report authorization form and doesn’t agree to allow you for a credit check. Not signing the authorization for a credit check is a big red flag. The tenant could be hiding something. This could indicate that the applying tenant doesn’t have the capability to pay monthly rent.
3. Interview the applying tenant personally.
You have to make sure that your tenants have a good personality and respectful with other people. Make sure that your tenants are friendly and they can get along well with other tenants who also rent your property. Developing a personal relationship and ability to communicate with your tenants is key to them feeling comfortable enough to contact you immediately when there is problems at your rental properties.
During the interview, you could ask the following questions:
- Why did you need to move from your previous rental?
- Do you have any pets and are they housebroken?
- Do you smoke? Indoors or outside?
- How many adults, children would be living in the rental?
- Do you have friends or relatives who regularly stay overnight?
- What is your daily routine? Do you have work at night?
- Can you pay the first month’s rent and security deposit before moving in?
Conduct the Background Check
1. Review Credit Reports for the Applying Tenants.
A credit report will help you in determining the financial stability and reliability of tenants. The information that can be found in a credit report includes any foreclosures, bankruptcies, unlawful detainer lawsuits and evictions of an applying tenant. A credit score is given by every credit company and this score reflects the financial reliability of the person.
According to wikiHow, a good tenant usually should have a credit score of over 620. Most property managers will develop their own criteria for evaluating a credit report. For instance, some rental properties might require an F.I.C.O. score of 700 or higher because there is a higher rent required. A higher credit score indicates and shows that the applying tenant is very responsible and financially able to pay their bills on time.
You can get credit reports online from the three major credit reporting bureaus such as TransUnion, Experian, and Equifax. Simply set up an account online and follow the instructions provided in requesting a credit report. In most states, you are allowed to ask the tenant to pay for the credit report as part of their application fees.
2. Run a background check on your applying tenant from a certified tenant screening company.
Use a permitted Consumer Reporting Agency when conducting a background check on an applying tenant. The Consumer Finance Protection Bureau provided a list of approved CRAs that you could rely on for tenant screening. Using a licensed or certified company allows you to easily follow privacy laws and other regulations when conducting a background check.
A background check cost from $20 up to $50 per person. You can ask your applying tenant to pay for the cost of background and credit checks.
You can find in a background check various information about the applying tenant. You should only choose tenants who could comply with house rules to prevent any conflicts in the future.
3. Call the potential tenant’s employer.
By calling the possible tenant’s employer, you can confirm whether the tenant provided a correct information regarding the employment and income information in his rental application form. When contacting employers always use alternative sources to find work numbers etc instead of the numbers provided by the applicant. Find employer numbers from online sources because this will eliminate any possible fraud of not speaking with the actual employer. Once you call and speak to the potential tenant’s employer, you can ask for the following:
- Do you have an employee named (name of applying tenant)? How long is that person working in your company?
- Does the person earn a fixed salary?
- Does the person have a full-time or part-time job?
- What is the person’s present income?
Consult with your local and state regulations of what you can actually ask employers regarding their employees so you don’t violate any privacy laws etc.
4. Contact the potential tenant’s past landlords.
Previous landlords can give you an insight about your applicant’s behavior. Again if possible, find past landlords using online methods or phone books as to avoid getting a friend of the applicant posing as a past landlord. When you are interviewing the past landlord, be more specific in your questions. You may ask them the following:
- When and how long did the person rent a property from you?
- Did they pay the rent on time?
- Did they break the lease agreement in any way?
- Did they damage anything in the property?
- Did you receive any complaints from other tenants or neighbors about the person?
- Why did the lease end?
- Would you rent your property to this person again?
5. Call the applying tenant’s personal references.
The friends or relatives are the good sources that can tell you about the applying tenant’s character. Once you called the personal references of the applying tenant, you can ask the following:
- How long do they know the applying tenant?
- Do they consider the person to be reliable?
- Would they consider the person as a good tenant to a landlord?
Final Thoughts About How To Do A Background Check
As a property manager, it is your job to conduct a background check on every applying tenant. It’s important to know how to do a background check correctly.
Sorting through applications and find the best and most qualified renters for your property is the ultimate goal of any property management business. When conducting the background check process remember the guidelines and tips noted in this article to make the process run quickly and efficiently.
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